TYPES OF ECONOMIC SYSTEMS Unit 3 Standard: SS7E5a,b

What is a Traditional Economy?

A pure traditional economy answers the basic economic questions according to tradition. Things are done as they were in the past, based on tradition, custom, and beliefs (like religious beliefs). resources are inherited there is a strong social system based on primitive methods and tools strongly connected to subsistence farming. usually developing countries

Traditional Economy What should be produced? By custom – whatever was produced in the past How should it be produced? By custom – however items were produced in the past For whom should it be produced? By custom – whoever usually received products will again receive them

What is a Market Economy?

National and state governments play a minor role. In a pure market economy, individuals and businesses make the economic decisions. National and state governments play a minor role. The market is freely chosen between buyers and sellers of goods and services. The market plays a major role in deciding the right path for a country’s economic development. Capitalism is a pure market economy. Consumers and what they buy drives the economy.

Market Economy What should be produced? Consumer choices dictate the success of goods and services How should it be produced? Business leaders choose the means of production Their goal is the most efficient and profitable methods For whom should it be produced? The consumers’ income determines who receives which goods and services 7

What is a Command Economy?

The government controls the production and makes all decisions. This could be one person, a small group, or central planners who decide what resources to use at each step of production and the distribution of goods and services. The government decides the role everyone will play. It guides the people into certain jobs. Typical in communist countries, dictatorships, or absolute monarchies.

Command Economy What should be produced? The government decides what should be produced and owns most of the means of production How should it be produced? The government does the planning for production: factory locations, the occupations of workers and their salaries For whom should it be produced? The government controls the distribution system for goods/services: housing, transportation, consumer items and sets prices 10

What is a Mixed Economy?

A mixed economy contains elements of the market, command, and traditional economies. Many economists doubt that “pure” economic systems ever existed. Supply and demand typically determine prices; however, the government may step in from time to time to set prices, establish a minimum wage, or control industries such as healthcare and education. In some countries there is some private ownership of businesses, such as in China.

What is a Continuum? A continuum is the range between two things, usually opposites of extremes. On an economic continuum the range is from a pure market economy on one far end to a pure command economy on the other end. Almost all countries have a mixed economy that falls somewhere in the middle or closer to one end than the other. ECONOMIC CONTINUUM MARKET MIXED COMMAND

CHARACTERISTICS OF THE UNITED STATES MIXED ECONOMIC SYSTEM Not all decisions are made by individuals reacting to the market. Federal, state, and local governments make laws regulating some areas of business. Public and private sectors contribute to the economy in varying proportions. For example, federal defense spending can boost the economy. Government steps in to handle inequities in the system. Many social/welfare programs were created during the 1930s. Traditional celebrations like Christmas affect portions of the economy.